With real wages not tipped to grow for a while, there is still a way that you can make the most of your money by salary packaging or through salary sacrifice arrangements if your employer has systems in place that allow for these types of arrangements.
Essentially, a salary sacrifice arrangement (sometimes also referred to as total remuneration packaging) is a formal agreement between an employer and employee whereby the employee agrees to receive a lower amount of pay each payday in return for the employer providing them with benefits of a similar value to the reduction in pay.
You may be thinking why it would be advantageous to receive less pay, the answer lies in the pre-tax and post-tax salary amounts. The amount that ends up in the bank every payday is your post-tax salary, that is the amount that you get after the tax is taken out. When you enter into salary sacrifice arrangements you may be able to pay for certain things from your pre-tax salary, which means your money goes further and you end up paying less tax.
Example
Ian receives a monthly pay of $1,000 before tax (pre-tax), say he pays 30% tax on the pay, that would mean his post-tax pay (the amount he receives in the bank) is $700 and $300 is withheld in tax. Ian has to pay for a course of study related to his work costing $200 each month, if he uses his after-tax pay to pay for the course he would only have $500 left. However, if his employer allows him to salary package the course of study and pay for it using his pre-tax salary, the scenario would be as follows:
Salary and wages before tax
$1,000
Salary sacrifice amounts
-$200
Salary and wages after salary sacrifice
$800
Tax at 30%
-$240
Post-tax salary (the amount received in the bank)
$560
Therefore, as can be seen in this simple example, Ian would get $60 more per pay cycle just by taking advantage of a salary sacrifice arrangement. If you think salary sacrifice may benefit you, note there are some requirements for it to be effective including entering the arrangement before the work is performed and having the arrangement in writing, as well as having no access to the sacrificed salary.
Once the requirements are satisfied, there are no restrictions on the types of benefits that can be sacrificed, the most important thing is that the benefits form part of your remuneration, replacing what would otherwise be paid as salary. Probably the most common types of salary sacrifice arrangements would relate to superannuation and costs of study. However, depending on the industry and employer there may be many other types of benefits that could be included.
